The author is a Forbes contributor. The opinions expressed are those of the writer.

Loading ...

Loading ...

This story appears in the {{article.article.magazine.pretty_date}} issue of {{article.article.magazine.pubName}}. Subscribe

A child and her nanny (Photo credit: Wikipedia)

Since my wife and I have had our first child, we've learned. One area where I didn't expect to learn much has been economics. And yet, through hiring and managing our daughter's nanny, I've learned quite a few things about how markets work.

One of our first lessons was about occupational licensing.

As first-time parents who were also first among their cohort of friends to have kids, when we started interviewing nannies, we were a bit lost. I mean, this is a stranger who we hire to spend five days a week in our home with our precious child.

At a loss, we wondered if there was perhaps some nanny certification that would ensure that we would end up with a safe person. There are diplomas and training programs and things like that, but no legally binding certification.

But it quickly dawned on me why.

The property of occupational licensing is that, by limiting the supply of performers of an occupation, it raises the cost of their labor, i.e. their wages, and the prices for the consumers.

Now, various occupational licensing rules--for doctors, nurses, pharmacists, lawyers, car dealers, et al.--are typically justified on two grounds: safety and quality. A licensing rule ensures, we're told, that the performers of the occupation will do it more safely and with higher quality than in a laissez-faire system.

But see, here's the thing. In a modern democracy, there's no group with more political clout than "parents who can afford to hire nannies."

And most parents, we must be sure, care very deeply about the safety and quality of the childcare their children receive.

So if anyone actually believed that occupational licensing ensures safety and raises quality, we would have occupational licensing rules for nannies.

Instead, we see the opposite, in every country I'm aware of. There are no occupational licensing rules for nannies as there are for, say, teachers and nurses. Instead, it's a totally laissez faire system. Indeed, nannies are often marginalized--they are often immigrants and/or uneducated people, who are paid off the books and therefore receive fewer benefits.

If there was a drive to create occupational licensing rules for nannies, middle and upper-middle class parents would immediately revolt (which is why it's on nobody's agenda). If that were to happen, wages for nannies would go up. But what about safety? What about quality? Don't parents care about those for their children? Of course they do.

And yet, somehow, the system works. Somehow, most parents entrust their children to nannies without a law to say who can be a nanny and who may not and, somehow, the system works.

The example of the nanny really drove home for me the extent to which occupational licensing is a sham. Here is an occupation where the concerns of safety and quality are paramount to the consumers, and where these consumers have political clout such that if they demanded occupational licensing rules, they would be immediately enacted. But because it is the consumers who have the political clout, not the producers, occupational licensing rules were not enacted. And nobody--quite rightly!--views this as a problem.

But people who think you should have certain sheepskins to be a doctor or a lawyer or else the Republic will crumble should remember that every day across the world, tens of millions of parents entrust their children to strangers every day, without laws specifying whom it should be, and that this system works. Occupational licensing really is a total sham.